David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Richtech Robotics Inc. (NASDAQ:RR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Richtech Robotics Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Richtech Robotics had US$2.14m of debt, an increase on US$681.0k, over one year. However, it does have US$8.20m in cash offsetting this, leading to net cash of US$6.05m.

How Healthy Is Richtech Robotics' Balance Sheet?

According to the last reported balance sheet, Richtech Robotics had liabilities of US$2.91m due within 12 months, and liabilities of US$91.0k due beyond 12 months. Offsetting these obligations, it had cash of US$8.20m as well as receivables valued at US$3.92m due within 12 months. So it actually has US$9.12m more liquid assets than total liabilities.

This surplus suggests that Richtech Robotics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Richtech Robotics boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Richtech Robotics will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Richtech Robotics wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to US$9.0m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Richtech Robotics?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Richtech Robotics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$3.8m and booked a US$2.3m accounting loss. However, it has net cash of US$6.05m, so it has a bit of time before it will need more capital. Richtech Robotics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Richtech Robotics (of which 1 doesn't sit too well with us!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com